DIRECTOR DUTIES s213 & s218 CA2016

If a director chooses to participate in management by exercising powers, he owns a fiduciary duty to

Directors are agents of the company and required to act bona fide for the benefit of the company as
a whole. Under Ca2016 has codified the duties of director in s213(1) and (2).

(1) a director of a company shall all times exercise his powers in accordance with this act, for proper
purpose and in good faith in the best interest of the company.

(2) a director of a company shall exercise reasonable care, skill, and diligence with the knowledge,
skill, an experience which may reasonably be expected of a person having the same responsibilities
and any additional knowledge, skill, and experience with the agent actually has.

According to s213(1) CA2016, One of the duties of a director is to act bona fide in the interest of the
company. Which mean director have good faith and proper purpose.

[GOOD FAITH]

When exercising his duties, the director must consider the interests of the company, not of his
personal interest.

Case :

1) Re W&M Roith Ltd (Pg246 11.33)

Facts: The object clause of the company contained an express power to provide for the welfare
of employees and ex employees and also their widows, children and other dependants by the
grant of money as well as pensions. Three years before the company was wound up, the Board
of Directors decided that the company should undertake to pay a pension to the widow of a
former managing director but after the winding up the liquidator rejected her claim to the
pension.

Held: The court held that the transaction whereby the company covenanted to pay the widow a
pension was not for the benefit of the company or reasonably incidental to its business and was
therefore ultra vires and hence null and void. The court held that three part testing are to
determine proper use of directors authority, namely was working in the best interest of
company, reasonable incidental to carrying on company’s business and to benefit the company
and promote prosperity

Three testing :

1. Was the transaction entered into good faith? 2. Was the transaction reasonably incidental to the
carrying on if the company's business 3. Was the transaction done for the benefit of

[PROPER PURPOSE]
The director must exercise his power for a proper purpose. The purpose of exercising their power
must for company’s best interest instead for the officer or director’s self interest.

S218(1) CA2016 illustrate the improper purposes that the director would be done. (pr246 11.36)

Cases:

KELAPA SAWIT (TELUK ANSON) SDN BHD v YEOH KIM LONG

Facts: Following the practice of the plaintiff to issue shares to its members as capitalisation of loans
or debts which may be owed to the members, a circular resolution was purportedly passed to allot
shares. The circular resolution, was however, only signed by three and not by all the directors.
Additionally, the share certificates were already signed and sealed when the circular resolution was
presented to the three directors for their respective signatures.

Held: The court held that the general rule is that directors may only exercise their powers
collectively by passing resolutions at board meetings (signed by all directors) unless the articles
otherwise provide. In view of these irregularities, the allotment of the share would not be described
as an act of the company and hence was a nullity.

Queensland Mines Ltd v Hudson (The director shouldn’t without consent in general meeting)

Facts: The plaintiff company was initially interested in developing iron ore mining operations in Tasmania. Hudson, who

was the managing director of QML, succeeded in obtaining the necessary licences to develop the mines. However,

QML was in financial difficulties and unable to proceed. Hudson resigned his position and with the full knowledge of the

directors of QML, successfully developed the mines. 11 years later, QML sought to hold Hudson accountable for the

profits he had made on the ground that he had exploited his fiduciary position as managing director to make the profits.

Issue: Breach of fiduciary obligations.

Held: The court held that Hudson was not liable to account because QML’s rejection of the opportunity to develop to

mines are not considered as breaching fiduciary duty and because Hudson had acted with full knowledge of the

directors of the company, who must be taken to have consented to his activities.

WHITEHOUSE v CARLTON HOTEL

Facts: Mr Whitehouse had all the shares and all the power. Decides to set up ‘backup’ procedure. He
has class A shares, wife has class B shares, and kids have class C shares. After they divorced, and wife
having class B shares, could not get them back.

Held: Even if the directors honestly believe a share issue is in the best interests of the Company, the
court held that the allotment of share was invalid due to improper purpose where director issue
shares for control purposes and not for capital raising purposes.

HARLOWE’S NOMINEES PTY LTD v WOODSIDE

WALLINGTON v KOKOTOVICH CONSTRUCTIONS

The court believes there were two purposes of the share allotment, one to raise capital, the other
to manipulate voting power. It is well established that this is not a proper purpose for the issuing of
shares.

ABERDEEN RAILWAY CO v BLAIKIE BROS (use position to benefit themselves)

The duty of those agents so to act as best to promote the interests of the corporation whose affairs
they are conducting. However extend to cases in which the director either has or can have a
personal interest conflicting, with the interests of whose whom he is bound to protect.

The house of Lords held that the company could avoid the contract even though its terms were fair.
The duty of directors to avoid a conflict of interest is strictly applied. The duty is imposed because of
the recognition of the frailty of human nature. The duty is breached whether or not they had
fraudulent motives.

REMEDY OF BREACHING DUTIES

If a director is in breach of his fiduciary duty to act bona fide in the interests of the company or fails
to exercise a reasonable degree of care, the company has different remedies available depending on
the circumstances.

Under s213(3) CA 2016 provides that where an officer is convicted of an offence the court may, in
addition to imposing a penalty, order that the officer pay compensation to the company if it has
suffered loss or damage as a result of the breach.

Case : s218 & 213(3)

PERSONAL AUTOMATION MART v TAN SWEE SANG

FACT: The defendant was the director of the plaintiff. She then set up another company in direct
competition and diverted a key business project to that company and also paid herself more salary
than due.

HELD: The judge held that there was a breach and she was ordered to pay damages. Even if the
company did not make losses, but there is a conflict and the director make a profit, he has to be
accountable for the profit.

MAHESAN v MALAYSIAN GOVERNMENT OFFICERS’ CO-OPERATIVE HOUSING SOCIETY

Facts: The appellant was a director and secretary of the respondent co-operative society. The
society discovered the fact only after the sale was done and discovered the appellant had received
$122,000 as secret commission from the vendor.
Held: There are alternative remedies against a briber. The plaintiff may recover the amount of the
bribe as money had and received or may recover as damages for tort, the amount of loss actually
incurred. The plaintiff cannot recover both. In this case, as the amount of loss was greater than
bribe, Mahasan was ordered to pay damages to the society.

SIMMAH TIMBER INDUSTRIES SDN BHD v DAVID LOW SEE KEAT

The court held that the director had breached his duty to the company by making secret profits. In this case,
although it was the company which had been injured through depletion of its funds, creditors were also
affected since it undermined the company’s ability to pay its creditors.

The Board of Trustees of Sabah Foundation v Datuk Syed Kechik bin Syed Mohamed

The judge found that there was a clear breach of fiduciary duties. The judge determined the
director could be held liable for breach of fiduciary duty by obtaining personal profit which in
equity belong to the company. 

**JUDGEMENT : A fiduciary is someone who has undertaken to act for or on behalf of another in a
particular matter in circumstances which give rise to a relationship of trust and confidence. A
fiduciary must act in good faith; he must not make for his own benefit or the benefit of a third
person without the informed consent of his principal.

In this case, Chin J applied three rules to determine whether a director could be held liable for
breach of fiduciary duties by obtaining personal profits which is equity belonged to the company.
(1) the no profit rule,
(2) the no conflict rule and
(3) the misuse of trust knowledge as rule.

Industrial Development Consultants v Cooley

Cooley was not prepared to deal with IDC but instead they chose to contract with the director,
Cooley personally. Cooley then told the board of IDC Group that he was unwell and requested he be
allowed to resign from his job on early notice. They accepted his resignation. IDC after that found
out the new contract between Cooley & EGB, and sued him for breach of his duty of loyalty.

Cooley, the managing director of IDC, had been negotiating a contract on behalf of the company,
but the third party wished to offer the contract to him personally and not to the company.
Without disclosing his reason to the company (or its board) he resigned in order to take
the contract personally. It was held that He was in direct breach of his fiduciary duty as he
had profited personally by use of an opportunity which came to him through his
directorship: it made no difference that the company itself would not have obtained the
contract. He was therefore accountable to the company for the benefits gained from the contract.

The IDC case also shows that an individual may still be subject to the duties even after he ceases
to be a director.

PESO SILVER MINES V CROPPER

Shanghai Hall v Chong MUn Full

The court held that if a director hold cross-directorship in two competing company, as long as the potential
conflict is disclosed to the company, it is not a breach of fiduciary duty.

Electro Cad Australian Pty Ltd & Ors v Metagi RCS Sdn Bhd & Ors

 The directors cannot misuse of confidential information. The judge stated what amounts to
confidential information where “Confidential information is generally information which is the
object of an obligation of confidence and is used to cover all information of a confidential nature.
These include trade secrets, literary and artistic secrets, personal services and public and
government secrets.

S213(2) CA2016

Daniels v Anderson